Required: Answer the following questions

1. The new store meets the definition of a qualifying asset under IAS # 23.

Which of the following is the correct description of a qualifying asset under IAS # 23?

A. An asset that is ready for use or sale when purchased.

B. An asset that takes a substantial period of time to get ready for its intended use or sale.

C. An asset that is intended for use rather than sale.

D. An asset that has been financed using a specific loan.

2. Three events or transactions must be taking place for capitalisation of borrowing costs to commence in accordance with IAS # 23. Which of the following is not one of these?

A. Expenditure on the asset is being incurred.

B. Borrowing costs are being incurred.

C. Physical construction of the asset is nearing completion.

D. Necessary activities are in progress to prepare the asset for use or sale.

3. What is the total of the finance costs which can be capitalised in respect of the new store?

4. Rather than take out a loan specifically for the new store Apex could have funded the store from existing borrowings which are:

A. 10% bank loan $50m;

B. 8% bank loan $30m.

What would the 'capitalisation rate' that should be used in capitalising borrowing costs?

5. If Apex had been able to temporarily invest the proceeds of the loan from 1, April to 1, May when construction began.

How would the proceeds be accounted for?

A. Deducted from finance costs.

B. Deducted from the cost of the asset.

C. Recognised as investment income in the statement of P/L.

D. Deducted from administrative expenses in the statement of P/L.